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Error 530 User Cannot Log In

I am trying to create an FTP site with SSL. I get the following message everytime I attempt to connect from within the network, there are no firewalls between me and the server and because I was having problems, I added my test user to the local Administrator Group on the server, but still can't get past the error:

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We could also choose for the quick fix.
Create a local user on the server, lets call it FtpLocalClient give it a password which never expires, give this user read/write right in d:\sftp and fill in that user in the 'Basic Settings User'

If user is called 'ftpuser1' there should be a folder in e.g. c:\inetpub\ftp\ftpuser1
Offcourse this user needs to have read/write/modify rights on this folder.

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commengAuthor Commented: 2013-11-01

In the user setup I gave them a home directory d:\sftp\ftpuser1 will full rights. But I created a ftpuser1 folder in the inetpub directory, with appropriate rights, but that did not resolve the problem either.

In IIS click the FTP server once and click basic settings, where does this physical path lead to?

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commengAuthor Commented: 2013-11-01

D:\SFTP

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commengAuthor Commented: 2013-11-01

OK, what did I miss. If I click test connection this is what I get:

The server is configured to use pass-through authentication with a built-in account to access the specified physical path. However, IIS Manager cannot verify whether the built-in account has access. Make sure that the application pool identity has Read access to the physical path. If this server is joined to a domain, and the application pool identity is NetworkService or LocalSystem, verify that <domain>\<computer_name>$ has Read access to the physical path. Then test these settings again.

Go to application pool users-> click the application pool once and select advanced settings. What is specified in 'identity'? toggle between localservice/networkservice/others to find out which one works.

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commengAuthor Commented: 2013-11-01

It just says pass-through authenication and I cannot find application pool users, can you point me a direction?

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commengAuthor Commented: 2013-11-01

I don't see an Application Pool for the FTP site, should there be one?